CPA REVIEW SCHOOL OF THE PHILIPPINES Manila Advaned Fans Aconting Gaara inererae/ald INSTALMENT CONGION ENT SALES Part: Theory of Accounts 2 ‘Under IAS 18, what isthe measurement of sales revenue ftom instalment sales? Book value ofthe consideration received or receivable '. Fair value of the consideration received or receivable. «. Cost of the consideration received or receivable. 4. Carrying amount ofthe consideration received or receivable. | consideration for the sale of ils iaventore” cn en instalment basis, what is the measurement sales revenue from instalment sales? Pace value of the note receivable b, Maturity value of note receivable ©. Present value of note receivable 4. Undiscounted value of note receivable eee : . Hove shall the difference between the fair value and nominal amount of the long-term note received as consideration in an instalment sales be accounted for? It shall be recognized as expense om the date of sale Wt Shall be recognized as gain on exchange cn the date of sale. shall be recognized as inerest revenue over the tem of the note using effective interest method. 44. Tt shall be recognized as interest revenue over the tenm of the note using straight line method. ese Inan instalment sales, if the collection ofthe note receivable is not remote and not reasonably, how shall the gross profit be recognized? fa Itshall be fully cecognized onthe date of sale using acerual basis. '. It shall be recognized in proportion tothe amount of collection under instalment method. , Itshall not be recognized. 4. It shall be recognized fuly only onthe year the receivable is completely collected. ‘Under generally accepted accounting principles, what isthe proper presentation of deferred (goss profit from instalment sales? ‘It shall be presented as current lisbiity. bi, It shall be presented as equity. 6. It shall be presented as deferred revenue, . It shall be presented as contra-instalment receivable account i If the fair value of the repossessed invenfory cannot be estimated retiably at the date of repossession, whet shall be the basis of iii! measurement of repossessed inventory? ‘a Estimated selling price less reconditioning cost less cost to sel. b. Estimated selling pice les reconitioning cost «Estimated selling price les cost to sel, ‘Estimated selling priceless reconditioning cost less cost to sell less normal profit. ‘the intial measurement of repossessed inventory is lower than the net of defbulted instalment reczivable and its corresponding deferred gross profit, the difference hall be recognized as 12 Loss on repossession to be presented as part of income from continuing operation before tax. b. Deferred loss on repossession tobe presented as current asset ¢. Gain on repossession to be presented as part of other comprehensive income. 44. Deferred gain on repossession tobe presented as current ibility 1Page 2 8. Under HRS 15, when shall a vonsignor recognize revenue from its consignment sales? a. When the consignor satisties its performance obligation under consignment contract. '. When the consignor enters into @ consignment contract with a consignee, When the consignor receives cash remittance from the consignee. 4. When it fs probable that future economic benefits will low to the consignor and the fair value ofthe revenue can be measured relishly 9. Uniler PERS 15, how does a consign at's performance obligation under consignment contri? Satisfaction over a period a period of time b._Sasstaction at specific point in time Enter A or B Neither A nor B 10. ndet PFRS i5, what i the spesific point in time when the consignor satisfies is performance obligation under consignment contrat? 1. Upon delivery of consigned goods by consignor to consignee b. Upon remittarce of cash by consignee to eonsignor © Upon sae of consigned goods by consignee fe final consumers 4. Upon signing of contrac of consignment by consignor and consignee 11, Under BFRS 15, shat is the measurement of consignment sales revenue? 8 Costof consideration reseed or reeeivehe b. Buck value cancideration sescived or reveivable 12, Which feigh is caputlistble or inventoriable cost by the consignor on the consigned goods under consige meat 2 Freight hom cossigncr tw consignee b. Freight Fon consigaee te consignor ¢. Froight fom consigae tw fil consumers 4 Ailofihe awe ‘Pact Mh: Protons 8: 1, The ABC Corapany scvenizes prod” on credit sales on is before the a-coceis arc edjuste, ve ledger shows the fallowing: iment basis. At the end of 2021, Installmest scours eceivable 2020 337,590 Installment Acsounts -oeivable 2621 ‘000 Deferred y-oss profit 2920 185,000 Deferes gro. prot 2021 277,500 Regular Sales 1,500,000 Cost of Regalar Salee ‘960,000 Bach year the gross protit vn installinens sales wes 8% lowe ‘goss profit on instalment sales 9s 4% higher than 2020. ‘than the regular sales, In 2021, the How such isthe total realized gross pvofici a 229,500 b. 769:500 181,000 4. 721,009 20217 1Page 3 2. Appliance Company reports gross profit on the installment bass. The following data ar availbl i 2018 2019 2020 Installment sales 240,000 250,000 300,000 Cost of goods — installment sales 180,000 181,250 216,000 Gross profit 60,000 68,750 84,000 Collections 2018 installment contracts 45000 75,000 72,500 2019 installment contracts 47500 80,000 2020 installment contracts 62,500 Defaults Unpaid balance of 2018 installment contracts 12500 15,000 ‘Value assigned to repossessed merchandise 6,300 6,000 Unpaid balance of 2019 installment contracts 16,000 ‘Value assigned to repossessed merchandise 9,000 1. What is the realized gross profit before loss on repossession for 2020? | a. 49,75 b. 57.625 © 48,975 4. $6,625 2. Whatis the loss on repossession for 2020? a 5250 b. 2600 7850 4. 9,000 3. Nikko Company, which began operations on January $, 2018, appropriately uses the installment ‘method of revenue recognition. The following information perizins to the operations for 2018 and 2019: 2018 2019 Sales 300,000 450,000 Collections from : 2018 sales 100,000 30,000 2019 sales : 150,000 ‘Accounts written off from 2018 sales 25,000 75,000 2019 sales - 150,000 Gross profit rates 30% 40% What amount should be reported as deferred gross profit on December 31,2019? a 754 b. 80,000 © 112,000 a. 125,000Page 4 4. On November 1, 2020, Speed Motor which maintains a perpetual inventory records sold a new ‘automobile to Rapids for P6,800,000. The cost ofthe car tothe seller was P5,205,000. ‘The buyer paid 30% down and received P640,000 allowance on an old car traded, the balance ‘being payable in equal monthly instalment payments commencing the month of sale. ‘The monthly amortization was P240,000 inclusive of 12% interest on the unpaid amount of the obligation. ‘The car traded-in has a wholesale value of P960,000 after expending reconditioning cost of 180,000, After paying three instalments, the buyer defaulted and the car was subsequently repossessed. ‘When reacquired, the car was appraised to havea fur vale of P2,400,000. How much isthe realized gross profit on instalment sales during 20207 a 820,596 b. 855,596 e. #85,000, 4. $03,897 5. On January 1, 2020, an entity sold car to a customer at a price of P400,000 with « production cost, of P300,000. It is the entity's policy to employ installment method to recognize gross profit from installment sales, At the time of sale, the entity received cash amounting to 25% of the selling price and old ear with trade-in allowance of P50,000, The ssid old car has fair value of P150,000, The customer issued 15-year note for the balance to be payable in equal annual installments every December 31 stating 2020. The note payable is interest bearing with 10% rate due on the remaining balance of the note. ‘The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual installment which resulted to the repossession ofthe car sold with appraised value of P110,000. On December 31, 2021, the repossessed car was resold for P140,000 after reconditioning cost of 10,000. 1, What is the entity’s realized gross profit for the year ended December 31, 2020? a 50,000 120,000, 108,000, d. 128,000 2 What is the loss on repossession for the year ended December 31, 2021? 30,000 20,000 10,000 40,000 pes ‘3. What is the realized gross profit from the sale of the repossessed merchandise on December 31, 20217 a 20,000 '. 30,000 ' e 40,000, 4. 50,000 8606Page 5 6. On December 1, 2020, Shamzock Inc. deivered 10 boxes of Otep bread and 10 packs of sample ‘bread, for tasting-purposes, to 24/7 real store on a consignment arrangement. The retail store does not take tile to the products and has no obligation to pay Shamrock Inc. until they are sold to the final customers. Any unsold products, excluding those that are lost or damages, ean be returned to Shamock Inc. and the later has discretion to eall products back or transfer products to another customer. ‘Shamrock manufactures the product at a cost of P5,000 per box of Otap bread and P100 per pack cof sample bread, There is freight collect of P2,000 for the delivery of 10 boxes of Otap bread to ‘24/7 but none for the sample bread. The selling price of the Otap product is P8,000 per box for ‘cash sales and P10,000 per box for credit sales with aterm of 2/10 1/30. The retail store i entitled ‘to a 5% commission on eash sales and 10% commission on net credit sales already collected. The retail store has the right to be reimbursed for the freight it incurred for its to final customers. Shamrock Tne. provides bad Get expense at an exinne of 8% bed on ending receivables. For the month ended December 31, 2020, 24/7 rea store was able to sel to final consumers 3 boxes of Otep bread on cash basis and 5 boxes of Otap bread on account, There is freight prepaid ‘of P3,000 forthe delivery of boxes of Otap bread to final consumers. Also, five packs of sample bread were consumed by final customers during the tasting period. The customers on account paid to 24/7 three out of five boxes sold on credit within the discount period but the remainder ‘continued to be unpaid as of December 31, 2020. At December 31, 2020, 24/7 Retail Store made its net remittance to Shararock Ine. 1, Under PFRS 15, what is Shamrock’s net income for 2020 in connection with the consignment arraignment? a 22,560 b. 21,240 ©. 20520 4 23920 2. Under PFRS 15, what is 24/7's net remittance to Shamrock on December 31, 2020? a 44,260 b. 45,320 © 4140 42,240 ‘ND